Complacency Reigns Supreme

March 25, 2018

I had intended to post part III of my interest rate series, however market conditions dictate that I post views on the current market.  This market is now communicating that it is at high risk.  For two months now, I have been advocating a strategic retreat.  Head for the sidelines and watch the action with an unemotional detachment.  The market is now sounding the alarm and one should be on high alert for a downside acceleration.

Plunger’s Bullet Points 

Here are the main points I have presented over the past few weeks:

  1. The market has been in a final Phase III since the Trump election- it lasted 16 months.

  2. Secondary Reactions rarely occur in Phase III- Therefore, any major decline could very well be the end of the bull market and not just another correction.

  3. Dec 2017-Jan 2018 was a classic buyers’ capitulation which traced out as a steeple top in many indexes.

  4. The proper course of action for investors should be to execute a strategic retreat and head towards the sidelines. One could redeploy capital once the market resolves itself according to DOW Theory methodology.

  5. Rising rates are in the process of bursting the largest credit bubble in history.

  6. The bursting of the bubble will usher in a Post Bubble Contraction.

  7. Gold stock bull markets are most robust within the confines of a PBC.

  8. Phase I of a new bull market in the gold stocks began in Jan 2016.

  9. Phase II started in Dec 2016, however initial action is characterized by further consolidation and lethargic action resulting in investor doubt and discouragement.

  10.  Excessive bearishness in the gold sector is unwarranted despite weak looking price action.

The largest financial bubble in history is concluding and one should prepare his bomb shelter and know how to protect oneself.

Supreme Complacency

I am standing on a mountain top and shouting-REDUCE YOUR RISK

Am I calling for a crash? – No, I am not, however conditions exist which would allow a crash to happen.  We are now 2 months after the highs put in by the major indexes worldwide.  This is the timeframe that crashes have traditionally occurred.  1929 and 1987 are classic examples.  Complacency reigns supreme as dip buyers are getting lathered up for another romp to the upside.  Don’t believe me?   Check out this Charles Schwab email I received in my inbox and don’t miss the name of it:

Bullish Investors typically continue buying one third of the way into a bear market, up until the point of recognition. After this point the pain becomes too great and they then retreat.

The arrogance and cluelessness of both the average investor and the financial establishment astounds me.  Take the FED, they think they can create $4.5 T of QE and then simply yank $1.8 T of it right out of the market while simultaneously increasing government borrowing by $1.2 T/year, all while threatening the largest buyer of T-Bonds with a trade war!  So after years of QE they think they can just turn the dial the other way and reverse it… astounding. Problem is, it doesn’t work that way.

This historic giant bubble is in the process of bursting- it’s now just a matter of time.

But enough of what Plunger has to say, let’s turn our eyes towards the market and listen to its message.  You know the line: I report…you decide:

First we will look at the big picture according to Dow Theory, then individual market leadership to include the FANGS and the FAB 4 then we will update our tour around the world.  Hang on as its going to be a wild ride…

DOW Theory Update

Friday’s action was huge as we now are poised to trigger a secondary reaction in the senior index.  I have gone back and reviewed the works of the great DOW theorists and conclude that we will use closing prices, not intraday extremes to determine market action.  Therefore the DOW has now violated its February lows and the Transports sit right at the lows.  One more closing down day in the transports triggers a SR classification:

General Stock Market Conclusion

If this deteriorating market does not scare the bejesus out of you, then I am sorry I can’t get through to you.  I encouraged everyone take a strategic retreat months ago.  Here is my heart felt plea: This is a big deal.  Complacency reigns supreme.  If you care about your financial future… your life… run to your bomb shelter NOW.  Yes we will have a buy the dip moment and it should be tradable, but it is not advisable to think that moment is now.

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Complete Report may be seen here: https://rambus1.com/2018/03/25/market-update-complacency-reigns-supreme/

Editor’s Note

Plunger is an Associate Writer and Resident Market Historian at Rambus Chartology.

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The word ‘silver’ originates from the Old English Anglo-Saxon word 'seolfor'

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